ZESA said Tuesday it had started paying a $70 million debt to Zambia, a necessary step before the two nations can embark on a joint 1,600 megawatt hydroelectric plant, which could help relieve a power shortage.

The two countries have started preliminary work on the Batoka power project, estimated to cost $2.5 billion, and expected to be built and operated by a private company for a period of years before transferring ownership to the two states.

ZESA Chief Executive Josh Chifamba told a parliamentary committee hearing the utility had started making payments to Zambia to clear the debt incurred when Zimbabwe sold off assets of a disbanded power firm jointly owned by the two countries to run hydroelectric plants at the Kariba dam.

Chifamba said Zimbabwe will have paid $40 million to the Zambians by the end of March.

“Zesa has paid US$20 million after the creation of a sinking fund with a local bank and should have paid an additional US$20 million by the end of March this year,” he said.

“The amount should be cleared by the end of March next year with work on the project expected to begin within 18 months as expressions of interest had been advertised.

"Zambians needed to see first that we were committed to settling that debt and to demonstrate that we are bona fide partners before they could actually enter into the Batoka project. Because we have done so, that has unlocked the project."

Batoka is situated 50kms downstream of Victoria Falls and with the two countries expecting to get 800 MW each from the project.

Zambia had refused to partner Zimbabwe until the Federation-era debt was cleared. The debt also includes proceeds of the sale of assets belonging to former Central African Power Corporation (CAPCO) which ran the Kariba project but was disbanded in 1987.

Zimbabwe, which currently generates just over 1,000 MW of power or about half of peak demand, has struggled to get funding for new projects to expand capacity, largely due to concerns about the handling of the country’s economy. The resulting power shortage has paralysed mines and industries.

Chifamba said ZESA, which is owed $740 million by non-paying customers, was struggling to raise long-term finance to fund its projects. The company has, however, cleared $100 million in debt for importing power owed to Mozambique's Hydro Cahorra Bassa.

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The utility signed a $400 million deal with Chinese hydropower engineering firm Sinohydro in December to expand its Kariba hydroelectric plant by 300 megawatts.

Zimbabwe is in discussions with Export-Import Bank of China over funding the expansion.

The country has licensed several independent power producers, but analysts say it is unlikely to attract significant foreign investment due to Mugabe's drive to force foreign firms, including mines and banks, to turn over 51 percent ownership stakes to locals under a black economic empowerment law.